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What happened?

On 28 February 2018, the district court for the Southern District of New York certifieda class of over-the-counter (“OTC”) investors suing Bank of America and JP Morgan. The investors are pursuing federal antitrust claims alleging the banks manipulated the London Interbank Offered Rate (“Libor”).

The certified class consists of investors that directly bought from the defendant banks financial instruments “that paid interest indexed to a US dollar Libor rate set” between August 2007 and August 2009, regardless of when the instrument was bought. Investigations by government regulators around the world revealed that bankers had been rigging Libor submissions in the late 2000s, triggering a series of lawsuits that were combined into the multidistrict litigation in the Southern District of New York.

The judge declined to certify proposed classes of exchange-based investors and U.S. lenders relating to certain state law claims. The plaintiffs failed to establish commonality concerning their allegations that the banks breached the implied covenant of good faith and fair dealing and unjust enrichment.

The district court previously found in 2013 that plaintiffs had not experienced antitrust injury because setting the Libor rate was an intrinsically collaborative exercise among a panel of banks. The U.S. Court of Appeals for the Second Circuit overturned that ruling in 2016 and remanded it back.

Why does this matter?

A decade after the alleged infringements, and following billions in fines and settlements with financial regulators and antitrust authorities, Libor and other litigation is still acting as a drag on banks’ legal expenses and reputation. Indeed, several banks have elected to settle with the OTC plaintiffs in the present case, including Citi in August 2017 ($130 million) and Deutsche Bank the day before the court’s ruling (£240 million).

Claims related to the manipulation of Libor and other interest rate benchmarks continue to progress, in the U.S. as well as in other jurisdictions, along with indictments and convictions of traders and directors involved in the alleged infringements. The Libor scandal thus remains a stark and current reminder that the consequences, in financial services, of a single set or related set of misconduct can be wide-reaching and long-lasting.

Aside from exposing the defendant banks to significant damages, the potential success of the OTC plaintiffs also will have implications on ongoing actions alleging conspiracies to rig other rates, such as Euribor, ISDAfix and foreign exchange benchmarks.

What are the next steps?

The district court must still rule on whether plaintiffs have established that they are “efficient enforcers”, a closer call according to the Second Circuit. The banks likely will argue on remand that private litigation is not needed to enforce the Sherman Act when governments around the world already are punishing them for their actions with regard to Libor.

How can Cadwalader help?

Cadwalader’s antitrust team is one of only a few to focus on the financial services sector. Located in key jurisdictions in the United States (New York, Washington DC) and Europe (London, Brussels), we are specialists in offering ‘end-to-end’ advice on compliance, investigations and related litigation in this sector.

If you would like to discuss the issues arising in this alert, or how we can help you more generally, please contact Amy Ray or Ngoc Hulbig.